MONTHLY CHINA ENERGY UPDATE |

2023 China Electricity Mix Yearly Review|

Massive Decarbonisation Progress is Key
Economic Stimulus
Xuyang Dong, China Energy Policy Analyst, Climate Energy Finance

30 January 2024

China installed a staggering 292.8GW of variable renewable energy in CY2023, +99% yoy,
way beyond any forecasts. China is accelerating electrification of everything, sustaining
strong electricity demand growth ahead of the strong +5.2% y-o-y GDP growth delivered.

NEWLY INSTALLED CAPACITY

Figure 1. New Capacity Installed in China in Jan-Dec 2023

During the last month of 2023, China added a total of 92.2 gigawatts (GW) of net new
capacity, bringing the total newly added capacity in calendar year (CY) 2023 to 360.1GW.

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CEF has removed an immaterial rounding error or adjustment in the data definitions disclosed by the
NBS between 2022 vs 2023.

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Of this CY total, 302.2GW was zero emissions capacity. representing 84% of the newly
installed capacity in the grid, a 92% year-on-year (y-o-y) increase.

Solar continues to take the lead in newly installed zero emissions capacity. During 2023,
China added 216.9GW of solar capacity in total, accounting for 60% of the annual newly
installed capacity and representing a 148% y-o-y increase. In December alone, China added
51.9GW of solar capacity to the grid, representing 56% of the newly added capacity of the
month.

The solar boom is followed by significant increase in wind installs. In December, China
commissioned 28.5GW of wind capacity, accounting for 31% of total newly added capacity in
the month. This brings newly installed wind capacity in 2023 to 75.9GW, 21% of total newly
installed capacity, representing a 102% y-o-y increase.

2023 has not been the best year for hydropower. In 2023, China added 8GW of new
hydropower capacity, 2% of the total newly installed capacity in the year and representing a
66% y-o-y decrease as China nears hydro capacity saturation.

2023 saw China add only 1.4GW of nuclear capacity, a 77% y-o-y decrease.

Notably, China continues to also add more thermal power capacity. In December, China
added 11.5GW of thermal capacity, accounting for 12% of the total newly installed capacity
for the month. This brought newly installed thermal capacity to 57.9GW for 2023, 16% of the
total newly added capacity, representing a 30% y-o-y increase.

INSTALLED CAPACITY

Figure 2. National Installed Capacity as of Dec 2023

By the end of 2023, China’s national installed zero emissions capacity reached 1529GW, or
52.4% of the total installed capacity, a 24.2% y-o-y increase.

Total installed solar capacity reached 609GW, 20.9% of the total installed capacity,
representing a 55.2% y-o-y increase and cementing China’s position as the absolute world
leader in installed solar capacity, with the US a very distant second.

At the end of 2023, total installed wind capacity surpassed total installed hydropower
capacity. Installed wind capacity reached 441GW at the end of 2023, accounting for 15.1%
of total installed capacity, representing a 20.8% y-o-y increase.

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422GW of hydro capacity is installed nationwide, accounting for 14.4% of the total installed
capacity, a 1.9% y-o-y increase.

Total installed nuclear capacity reached 57GW, accounting for 1.9% of total installed
capacity, representing a 2.5% y-o-y increase.

Installed thermal capacity is both exceptionally high, and continuing to grow at unsustainable
rates if the climate science is to be delivered on, reaching 1390GW, representing a 4.3%
y-o-y increase.

At the end of 2023, installed thermal capacity was 47.6% of total installed capacity, a decline
compared to thernal’s share of installed capacity at the end of 1QCY2023 of 51%. However,
it should be noted that generation share is more important, given materially different capacity
utilisation rates.

ELECTRICITY GENERATION MIX

Figure 3. China’s Electricity Generation Mix in Jan-Dec 2023

In December, China’s national electricity demand increased by 9.4% y-o-y, reaching 829
terawatt hours (TWh).

Solar power generation reached 21TWh in December, a 30.3% y-o-y increase. During
CY2023, total solar power electricity generation reached 294TWh. Whilst solar represents
20.9% of installed capacity at the end of 2023, solar’s share of generation is just 3% of the
total, even with a 28.4% y-o-y increase, reflecting the abnormally low solar capacity
utilisation rates, an area we will undertake further analysis on in our forthcoming China
Electricity Model to 2040 report.

Wind power generation reached 81TWh in December, a 12.6% y-o-y increase, which brings
the total wind power generation in 2023 to 809TWh, accounting for 9% of the total electricity
generation, a 17.8% y-o-y increase.

In December, hydropower generated 78TWh of electricity, a 3.7% y-o-y increase, bringing

the total hydropower generation in 2023 to 1,141TWh, 13% of total generation, a 5.1% y-o-y
decrease.

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Nuclear power generation reached 38TWh in December, representing a 4.2% y-o-y
decrease. During CY2023, the whole year nuclear power generation reached 433TWh,
accounting for 5% of the total power generation, showing a 3.7% y-o-y increase.

Thermal power generation still represents an unsustainable 70% of the total power
generation in 2023, reaching 6232TWh during January to December, representing a 6.5%
y-o-y increase. December alone saw 611TWh of electricity generation from thermal power, a
10.1% y-o-y increase.

STIMULATING ECONOMIC GROWTH THROUGH OPPORTUNITIES IN

DECARBONISATION

Leading China energy analyst Lauri Myllyvirta of the Centre for Research on Energy and
Clean Air (CREA) argues clean energy was the top driver of China’s 2023 economic growth.

While many were sceptical about China’s economic resilience as the residential real estate
market crumbled in the past year, this report shows a globally significant macroeconomic
strategic pivot in 2023 to stimulate the country’s economic recovery by accelerating
investment into zero-emissions industries of the future, both in terms of manufacturing for
domestic deployment, and, increasingly, to leverage the structural growth in green energy
system exports led by solar, batteries and EVs.

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The CREA report highlights that clean energy emerged as the primary driver of China's
overall economic expansion, accounting for approximately 40% of the annual growth in GDP
across all sectors, while all of the investment growth in 2023 came from clean energy.

This pivot is no more obvious than in the country’s investment trend in 2023, which flowed
from the real estate sector into manufacturing, especially clean energy sector manufacturing.

Investment in the real estate sector fell by 10% y-o-y in 2022 and another 9% y-o-y in 2023.
In contrast, investment in manufacturing increased by 9% y–o-y in 2023, with investment in
the power and heat sector increasing by 23% y-o-y due to the large allocation of capital into
the clean energy sector.

This trend can also be tracked within China’s major energy State Owned Enterprises’
(SOEs) investments. As we highlighted in our recent report ‘Decarbonising China & the
World: Chinese Energy SOEs Supercharge Renewable Investment in Response to the 14th
Five Year Plan’, all 5 of the largest Chinese energy SOEs examined in the report are aligning
their capital expenditure (capex) trends, at the consolidated parent entity level, with the
Chinese Government's central national energy policy set out in its 14th Five Year Plan (FYP)
[2021-2025]. This targets a 50% increase in renewable energy generation and directs that
50% of incremental electricity consumption (increase in demand) come from renewables
over the period 2021-2025.

These SOEs have adopted various strategies to meet the 14th FYP energy targets, which
operate in the context of China's overarching double carbon goals – to peak CO2 emissions
before 2030 and achieve carbon neutrality by 2060.

SOEs are significantly ramping up their investments in renewable energy and actively
pursuing diversification by expanding their business ventures into a broader array of
renewable energy sources. Further, to align with the central energy policy and boost the
proportion of clean energy in their portfolios, SOEs are implementing strategic acquisition
programs at the parent company level. This concerted effort reflects their commitment to
meeting the central government’s policy goals and driving energy transition.

China’s strong domestic EV uptake has also disrupted the global EV industry landscape.
US-based think tank CSIS estimated that Beijing’s total spending on the EV industry

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exceeded $125bn between 2009 and 2021. China has overtaken Japan to be the world’s
largest vehicle exporter, and China’s BYD has surpassed Tesla to become the world’s
biggest EV maker.

SOME LESSONS FROM CHINA’S DECARBONISATION PROGRESS IN 2023

Decarbonisation is a deep and complicated process. it requires solid science-backed policy

initiative at government and corporate level, ambition, determination, and, critically,
substantial capital investment. It also requires long-term strategic thinking, anticipating
market trends in the next decade or two to effectively transition entire economies towards an
inevitable net-zero future.

As noted above, China’s staggering progress in decarbonisation is the #1 driver of

investment and GDP growth. It is also creating the jobs of the future.

While job security is key and Australia has been historically dependent on fossil fuel exports,
the fact is that the fossil fuel industry has passed its prime, and the policy failure and inertia
of a decade of the federal LNP has left Australia limited time to transition to a decarbonised
workforce – a challenge which the incumbent Albanese government has yet to fully address.

There may be lessons from China, which is facing a similar challenge. Shanxi is the
country’s biggest coal mining province, arguably the equivalent of NSW, though on a much
larger scale. Caixin has reported that around 250,000 jobs in Shanxi are forecast to be lost
by 2050 with the shift to renewable energy.

In China, there is a clear shift already evident in the workforce. For example, according to
China’s online recruitment platform Zhilian Zhaopin, jobs posted in the new energy industry
grew 36% during 1HCY2023 alone. Positions for wind power engineers saw a remarkable
738% y-o-y increase, driven by the booming clean energy sector. This surge is driven by the
growing number of wind power projects, necessitating more engineers for research, design,
construction, and maintenance. Engineering supervision positions saw a massive 322%
y-o-y growth in the first half of 2023, aligning with the rapid expansion of new-energy
projects.

Australia, too, has the potential to enjoy the job and economic benefits of a new energy
economy. For example, the ACTU/BCA/WWF/ACF Sunshot report projects 400,000 jobs to
2040 in renewables export industries, and the NAB/Deloitte Powering Up report identifies a
green industrial export opportunity worth $420bn by 2050.

Australia has superabundant sun and wind for renewable energy generation and some of the
world’s leading reserves of the critical minerals and energy transition materials that underpin
the transformation of the global economy. Climate Energy Finance and its partners including
the Climate Capital Forum have urged the government to rapidly scale its energy transition
policy and investment ambition to crowd-in hundreds of billions in private capital, and
leverage the nation’s generational opportunity to establish itself as a zero-emissions trade
and investment power. This is particularly pressing in the light of China’s leadership and
landmark global moves toward decarbonisation such as President Biden’s ~US$1tn Inflation
Reduction Act, which is driving re-industrialisation and economic and jobs growth in the US.

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Meanwhile, although China still has a long way to go to green its entire national grid, its
workforce – and its massive economy – the country has effectively consigned
high-emissions industries to obsolescence over time. China’s investment priorities show the
future powered by clean energy, and is seizing the opportunity to develop, lead and
dominate the global renewable energy market.

Achieving decarbonisation requires more than just an eye to short-term financial gain;
fundamental structural reform within the country’s economy is the precondition to thrive from
decarbonisation both environmentally and economically. In China, this is underpinned by the
accelerating energy system transition that our analyses have tracked, as the world’s second
biggest economy pushes even further ahead of the rest of the world.

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Previous Monthly China Energy Updates here.

Contributing editors: Tim Buckley and Annemarie Jonson, CEF